TY  - JOUR
AU  - Efing, Matthias
AU  - Hau, Harald
AU  - Kampkötter, Patrick
AU  - Steinbrecher, Johannes
TI  - Incentive Pay and Bank Risk-Taking: Evidence from Austrian, German, and Swiss Banks
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 20468
PY  - 2014
Y2  - September 2014
DO  - 10.3386/w20468
UR  - http://www.nber.org/papers/w20468
L1  - http://www.nber.org/papers/w20468.pdf
N1  - Author contact info:
Matthias Efing
Finance Department
HEC Paris
78351 Jouy-en-Josas
Paris
France
Tel: (++33) 1 39 67 71 19
E-Mail: efing@hec.fr

Harald Hau
University of Geneva, GFRI
& Swiss Finance Institute
Bâtiment Pignon
40 Bd du Pont d'Arve
1211 Genèva 4
Switzerland
E-Mail: prof@haraldhau.com

Patrick Kampkötter
University of Cologne
Albertus-Magnus-Platz
50923 Cologne
Germany
E-Mail: patrick.kampkoetter@uni-koeln.de

Johannes Steinbrecher
Ifo Dresden
Einsteinstrasse 3
01069 Dresden
Germany
E-Mail: steinbrecher@ifo.de
M1  - published as Matthias Efing, Harald Hau, Patrick Kampkötter, Johannes Steinbrecher. "Incentive Pay and Bank Risk-taking: Evidence from Austrian, German, and Swiss Banks," in Richard Clarida, Jeffrey Frankel, Francesco Giavazzi, and Hélène Rey, organizers, "NBER International Seminar on Macroeconomics 2014" Journal of International Economics, 96(S1) (2015)

M3  - presented at "International Seminar on Macroeconomics", June 27-28, 2014
AB  - We use payroll data on 1.2 million bank employee years in the Austrian, German, and Swiss banking sector to identify incentive pay in the critical banking segments of treasury/capital market management and investment banking for 66 banks. We document an economically significant correlation of incentive pay with both the level and volatility of bank trading income-particularly for the pre-crisis period 2003--7 for which incentive pay was strongest. This result is robust if we instrument the bonus share in the capital markets divisions with the strength of incentive pay in unrelated bank divisions like retail banking. Moreover, pre-crisis incentive pay appears too strong for an optimal trade-off between trading income and risk which maximizes the NPV of trading income.
ER  -